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Speech of the President of the Republic of Azerbaijan Heydar Aliyev at the official reception organized in honor of the Azerbaijani President of Azerbaijan by the Japanese economic organizations - February 26, 1998

Mr. President,

Ladies and gentlemen, dear friends,

I warmly welcome you all and express my deep appreciation for the fact that I was given the opportunity to meet you, the representatives of the largest business circles of Japan. I appreciate meeting you here, at the dinner hosted by you as an important event. We actively strive to develop comprehensive cooperation with Japan in Azerbaijan. It is clear that it is based on cooperation in the economic sphere. I therefore attach great importance to this meeting.

I hope that you have some idea about Azerbaijan. However I shall say a few words about our country.

Azerbaijan is a country with an ancient history, rich traditions and a distinctive culture. Our people have made great contribution to the world civilization. During XIX and XX centuries, Azerbaijan first was part of the Tsarist Russia and after the October Revolution it became part of the Soviet Union. In connection with the collapse of the Soviet Union in 1991, Azerbaijan gained independence and we believe that this is a historic event in the life of our people.

In the years of independence, we were able to establish multiple links with many countries of the world and take our rightful place in the world community. The population of Azerbaijan is 7.5 million and its area is 86,000 square kilometers. Azerbaijan is a country with a developed industry, based on oil industry. Oil production in Azerbaijan has a rich and ancient history and we are proud of the fact that Azerbaijan has made great contribution to the development of the oil industry in the world. Off-shore oil production started in Azerbaijan for the first time in the world.

After independence, we built in Azerbaijan a democratic, legal and secular state. Just like other countries of the former Soviet Union, we are in the period of transition from the old socialist economy and socialist socio-political system to a new economy based on market relations. We pursue the road of development of economic reforms and market economy and I have to say that we have already some positive results. We develop private enterprise and private sector. We have an active program of privatization of property, the law on the transfer of land to private ownership with the right of purchase and sale. We announced an open door policy and created favorable conditions for foreign investment.

We adopted the first Constitution of Azerbaijan in 1995, which includes specific measures for the development of the economy on the basis of market relations. We adopted a lot of laws aimed at the liberalization of economy, foreign trade and creation of favorable conditions for foreign investment. In order to encourage imports, we have reduced tariffs, they are low, 15 percent, and we have not export and customs taxes.

The main thing that attracts foreign investors is, of course, the oil and gas industry. We signed the first major contract for 30 years with investment of 8 billion dollars with consortium, which includes 11 companies from 6 countries in September, 1994. This contract was implemented, and on November 12 last year, we produced the early oil from "Chirag", developed in accordance with this contract. We already export the oil by the pipeline passing through Russia to Novorossiysk on the Black Sea.

After the first contract we signed 8 contracts which involv about 20 oil companies from 12 countries. The total investment in these contracts is approximately 30 billion dollars.

Naturally, we are working on the issue of transportation of oil from Azerbaijan. As I have already said, we have commissioned one pipeline that connects Baku with the port of Novorossiysk. Another pipeline is to be built to the west which will pass through Georgia to its Black Sea port of Supsa. We plan the construction of the main pipeline, which is supposed to reach Ceyhan port on the Mediterranean Sea passing through Georgia and Turkey starting from Baku. It is also proposed to build oil and gas pipelines which will start from the eastern coast of the Caspian Sea, Kazakhstan and Turkmenistan across the Caspian Sea, reach Azerbaijan and then the West, Europe through Georgia and Turkey.

All the countries which have newly gained independence, including Azerbaijan, suffer economic crisis in the transition period. Beginning from 1990, our rate of production annually falls. However, we were able to overcome it. We managed to stop the decline in production in 1996 and in 1997 achieved its growth. Since the beginning of 1990 to 1996, the gross domestic product was falling by 25 per cent each year and the level of industrial and agricultural production was also falling approximately in the same rate. We managed to stabilize the economy in 1996 and in 1997, the volume of gross domestic production increased by 5,8 per cent and the growth of industrial production was about 1 percent. We managed to overcome inflation, which was 1600 per cent in 1994. We actually had no inflation in 1997. The budget deficit was about 2 per cent. We have managed to stabilize our national currency manat, which has become even stronger against the dollar over the last few years.

The policy of open door has allowed us establish many economic relations with different companies in different countries, which has led to an influx of investments in Azerbaijan. The volume of investments in our country was 600 million dollars in 1996 and it doubled to 1 billion 200 million dollars in 1997. I think that in 1998 the growth will follow with the same rate.

Privatization ensures the active participation of foreign citizens in it. There are opportunities to create joint ventures or enterprises mixed with the absolute or foreign capital in Azerbaijan. We have adopted a number of laws which protect the foreign investment. According to our laws, foreign investors have the opportunity to transfer their profits to their countries. We develop the banking system and I repeat once more that we have opened the doors of our country and invite foreign investors.

With a sense of satisfaction I would like to mention that the Japanese investors are actively coming to Azerbaijan in the recent years. Six Japanese companies have their special offices in our country. I know that the "Itochu", which is a member of our first oil contract signed in 1994, has achieved great successes. It owns 20 per cent of the shares of participants in the project in "Dan ulduzu" and "Ashrafi", on which a contract was signed in 1996. We have also received some proposals from other Japanese companies on joint oil and gas developments in the Azerbaijani Sector of the Caspian Sea. We consider them now and I am sure that they will also be implemented into life.

Azerbaijan has a diversified industry and economy. Thus, there are great potentials for cooperation and investment into other areas. The largest fields we have are petrochemical and chemical complexes, ferrous and nonferrous metallurgy, machine building, light industry, processing of agricultural products. The investment and collaboration in all these areas can be ensured.

Our relations with "Nichimen” is successfully developing. We intend to sign a big contract with it with the loans of "Eximbank" of Japan and government guarantees of Azerbaijan today or tomorrow.

Electricity is a major industry in Azerbaijan. We have projects on the reconstruction and construction of power plants. We expect to receive credits from International Cooperation Fund for the construction of "Shimal" power station. There are projects for the construction of "Oil Rocks" power station and a compressor station in the field of "Bahar".

During my meetings, held with the leaders of many Japanese companies yesterday and the day before, I received many proposals on joint work in Azerbaijan. I approve these proposals. We need to think together and to identify the sources of funding of these projects. I hope that our joint efforts and support of the Japanese government will bring the expected results.

Azerbaijan is the country with a good climate, rich culture and national cuisine. Therefore, I invite you all to Azerbaijan to work together. Those companies that are already working with us, I think, can speak about it themselves. I believe that they are happy with our relations. You can be sure that as an independent state, Azerbaijan firmly stands on the position of independence and its economy will grow only on the principles of the market economy. We shall continue to make efforts for cooperation with foreign companies, including the Japanese companies hence. There is a great potential not only in the oil and gas industry, but also in many other areas of the economy.

I believe that my official visit to Japan, which is taking place in these days, the meeting to be held with the Prime Minister today, the documents that we shall sign between our countries will open a new stage in the development of the Japanese-Azerbaijani relations. You can be sure that Azerbaijan will be a reliable partner for Japan for many, many years. Thank you for your attention.